Inward FDI in the United Arab Emirates and its policy context

Inward foreign direct investment (FDI) is important in building a sustainable and diversified economy as envisaged by the United Arab Emirates (UAE). The UAE’s stock of inward FDI (IFDI) grew at an average annual growth rate of 49%, from US$1.1 billion (1.5$ 85.4 billion (23.7% of GDP) in 2011. Many foreign multinational enterprises (MNEs), including several Fortune 500 companies -- have established affiliates in the country. The rapid growth of IFDI reflects confidence in the UAE economy and efforts to enhance its competitiveness. The recent global crisis has, however, significantly reduced IFDI flows. Efforts are under way to speed up the ratification of a new foreign investment law, which removes several of the current legal barriers to FDI and offers foreign investors similar rights to hose of UAE nationals

But Most of All We Love Each Other: Does Social Cohesion Pay off? Evidence from FDI Flows to Middle Income Countries

The World Bank (2013) argues that social cohesion shapes the context in which entrepreneurs make investment decisions and therefore job creation. In this paper, we focus on FDI as one link of primary importance in this argument, and empirically examine the relationship between social cohesion and FDI flows. Using panel data on 52 middle income countries for the period 1984-2012, we first identify social cohesion-related institutions using principal component analysis and then examine the influence of those institutions individually and as a principal component on FDI flows. PCA identifies religion in politics, internal and external conflicts, and ethnic tensions as institutions with highest loadings. Adopting dynamic panel estimation methodologies - FE, IV and system GMM, the paper finds that religion in politics stands out with its positive influence on FDI inflows. A one percentage point improvement in religion in politics increases FDI flows by about 0.5 percentage point. The positive influence is robust to the estimation methodology adopted and to the sample size. The novelty of the paper lies first in identifying social cohesion-related institutions and principal component and second in discovering the positive influence of less religion in politics on FDI flows to middle income countries

Labor Market Efficiency and Youth Unemployment in the MENA Region

The Arab countries of the MENA region adopted a state-led development path in the sixties and seventies. Since then, the government and the public sector have become the main owners of factors of production and labor force employers (Cammett et al., 2015). Salehi-Isfahani (2012) projected high youth unemployment rate to be a key challenge. The purpose of this paper is to qualitatively discuss the development of youth unemployment over time in the Arab world and empirically examine the determinants of youth unemployment. Data shows that high youth unemployment is a challenge. Using system GMM estimation methodology and panel data on the period 2007-2017, empirical evidence shows that labor market efficiency and growth reduce youth unemployment rate, while education quality increases it. The results shed light on the needed policies to tackle youth unemployment and achieve social stability

Labor Market Flexibility and FDI Flows: Evidence from Oil-Rich GCC and Middle Income Countries

In this paper we empirically examine the impact of labor market flexibility on FDI flows to oil-rich GCC and compare it to middle income countries in 2006-2011. We account for potential endogeneity and nonstationarity and adopt system GMM and IV estimation methodologies. Our findings show that in middle income countries overall flexibility increases FDI flows under both system GMM and IV methodologies. In GCC countries overall LMF decreases FDI flows under system GMM methodology. Results also show a positive “GCC region” influence outweighing the negative flexibility influence. Growth potential and infrastructure development matter for both GCC and middle income countries

Institutional Reforms Debate and FDI Flows to MENA Region: Does One .Best. Fit All?

The paper revisits the policy debate on institutional reform approaches to property rights protection and empirically examines it in the context of FDI flows to the Middle East and Northern Africa region (MENA).Using panel data on 11 MENA countries for the period 1991.2007 and adopting feasible generalized least squares estimation methodology, the paper finds a positive influence of improvement in the risk of investment expropriationin non-Gulf Cooperation Council (GCC) MENA countries and of bilateral investment treaties (BITs) in GCC countries. The joint influence of domestic institutional functions and BITs is positive in specifications containing investment expropriation risk and government stability in non-GCC MENA countries, and corruption in GCC countries. Results have important policy implications for the institutional reform approach to be adopted.property rights protection, bilateral investment treaties, foreign direct investment, institutional reforms, MENA, heterogeneity

United Arab Emirates FDI Outlook

FDI is important in building a sustainable and diversified knowledge-based UAE economy. The stock of FDI grew at an average annual growth rate of 45.3 percent over the past decade reaching US$ 95 billion or nearly 27 percent of GDP in 2012. FDI flows have not recovered from the global financial crises. Most FDI stock is concentrated in finance, construction, and real estate. Recent greenfield FDI is concentrated in construction, while more than half of top M&A deals took place in finance, transportation, communications and utilities. The list of top OECD home countries for FDI flows to the UAE include Italy, Germany, Chile, United Kingdom, Luxembourg, France, United States, and Belgium. Though UAE investment policy limits foreign investment and reduces competition, the Government has undertaken reforms and contracted investment treaties that have encouraged investment. Efforts are under way to speed up the ratification of a new foreign investment law, which removes several of the current legal barriers to FDI and offers foreign investors similar rights to those of UAE nationals. The UAE has high FDI potential with plenty of room for improving FDI performance and benefiting the economy

Political Risk Guarantees and Capital Flows: The Role of Bilateral Investment Treaties

This paper examines the influence of political risk guarantees of bilateral investment treaties on debt and equity flows using panel data on middle income countries for the period 1984-2011. Adopting system GMM methodology, the paper empirically finds that ratified bilateral investment treaties with OECD countries have a combined positive influence on non-guaranteed debt flows and a direct positive influence on portfolio equity flows. The results highlight the importance of considering political risk guarantees in financial integration, regulation of financial markets and institutions, and capital liberalization

United Arab Emirates FDI Outlook

FDI is important in building a sustainable and diversified knowledge-based UAE economy. The stock of FDI grew at an average annual growth rate of 45.3 percent over the past decade reaching US$ 95 billion or nearly 27 percent of GDP in 2012. FDI flows have not recovered from the global financial crises. Most FDI stock is concentrated in finance, construction, and real estate. Recent greenfield FDI is concentrated in construction, while more than half of top M&A deals took place in finance, transportation, communications and utilities. The list of top OECD home countries for FDI flows to the UAE include Italy, Germany, Chile, United Kingdom, Luxembourg, France, United States, and Belgium. Though UAE investment policy limits foreign investment and reduces competition, the Government has undertaken reforms and contracted investment treaties that have encouraged investment. Efforts are under way to speed up the ratification of a new foreign investment law, which removes several of the current legal barriers to FDI and offers foreign investors similar rights to those of UAE nationals. The UAE has high FDI potential with plenty of room for improving FDI performance and benefiting the economy

Female Youth Unemployment in the GCC Countries: A Political Economy Perspective

This research empirically examines the relationship between flexible labour markets, the social contract, and female youth unemployment rate in the high-income, oil-abundant Gulf Cooperation Council countries. We hypothesize that flexible non-segmented labour markets improve female youth unemployment rate while the social contract worsens it. Empirical evidence shows that both flexible labour markets and the social contract improve the female youth unemployment rate. The results are robust to changes in model specification and the sample countries. Flexible labour markets, however, are key to the improvement in the female youth unemployment rate, while the social contract is not. This research has important implications for selecting the appropriate policies to address youth unemployment

Some Effects of IMF Lending Programs in the MENA Countries

The goal of this paper is to examine whether IMF lending programs in the MENA region lead international lenders to perceive lower lending risks and generate moral hazard as reflected in a shift in the maturity composition of international debt toward long-term debt flows. We find that IMF credit in general generated moral hazard in MENA after the IMF large-scale rescue package to Mexico